The government's multi-billion pound insurance scheme to ring-fence British banks' toxic assets and reboot lending to the recession-hit economy has run into a wall of opposition in the EU, the Guardian has learned.

The European commission and several leading EU countries are understood to have objected that the UK proposals are a serious threat to competition and to the much-prized single market.

The commission is due to publish final guidance on how to treat their toxic or impaired assets next Wednesday. It is understood to be insisting that the UK Treasury impose a hefty premium on the banks benefiting from the insurance.

Royal Bank of Scotland, soon to be 70% owned by the British taxpayer, is the guinea pig for the scheme which is regarded as vital in ring-fencing an estimated £150bn of toxic assets on its balance sheet. Details of the scheme are yet to be finalised, but there are expectations of a government announcement when RBS publishes its 2008 figures - expected to show a £28bn loss - next Thursday .

Analysts at Credit Suisse have assumed that RBS and other banks signing up to the insurance scheme would pay an annual fee of 3% and might not have to pay in the first year of what might be a three- to five-year arrangement. The government has made it clear that RBS would not have to find the cash - which would indicate annual payments of £4.5bn - but could pay in other ways. The Credit Suisse analysts suggest that RBS, which has received £20bn of government funds, could pay using deferred tax assets or issue subordinated debt or other bonds to prevent the government's stake from rising any higher. RBS shares closed last night at 18.1p down 12.5%.

Brussels is also determined to force Britain to shrink the business of its state-owned or semi-nationalised banks through restructuring schemes as the eventual price for approving the scheme.

Last autumn Neelie Kroes, the EU competition commissioner, and colleagues imposed at least 10 conditions, including stiff charges and a ban on dividends, for sanctioning the government's £250bn bank recapitalisation scheme.

Kroes's department is now taking the same approach in negotiations with Whitehall. Brussels is also considering forcing France to raise the 6% premium on its €6bn (£5.3bn) loans to its two biggest carmakers. Renault and PSA Peugeot Citroën.

Britain has been at the forefront of EU countries pressing for early approval on how to define, evaluate and treat toxic assets said to amount trillions of euros in Europe. Other countries urging a rapid solution in the run-up to an emergency EU summit in Brussels on 1 March are Holland, whose biggest bank ING declared a €3.7bn loss in the final quarter of 2008 yesterday, and Germany, where the cabinet approved legislation to take banks under full state control.

Britain pressed to be allowed to go ahead with its scheme at last week's meeting of EU finance ministers.

Subsequent talks at the EU's economic and financial committee, chaired by senior commission officials and embracing senior treasury officials from all 27 countries, have failed to resolve serious differences, according to insiders. Countries whose banks are less exposed to toxic assets are mounting the fiercest resistance to the insurance schemes, they added.

The Treasury has yet to submit its proposed insurance scheme, amid suggestions that it is waiting for the commission to issue its final guidance next week. It said yesterday: "The government has worked very closely with the EU commission on support for financial institutions in the UK and will continue to do so. There will be further announcements relating to the detail of the asset protection scheme by the end of the month."